Mirvac takes heart from recent demand as FY23 sales hit by higher interest rates

Higher interest rates, lower first-home buyer activity and fewer product launches may have impacted sales in Mirvac Group’s (ASX: MGR) residential division in FY23, but the company is taking heart from ‘good demand’ from owner-occupiers in the fourth quarter.

Mirvac today posted a $165 million bottom-line loss for the past financial year, down from a $906 million statutory profit in FY22.

While the result was driven by a drop in development revenue and asset revaluations, the development group’s underlying earnings remained fairly robust as Mirvac reported an after-tax operating profit of $580 million, down 3 per cent. Operating earnings before interest and tax (EBIT) of $767 million were down just 1 per cent.

During FY23, Mirvac settled 2,298 residential lots, which was higher than its revised settlement target of 2,200 lots.

However, the company only exchanged 1,638 residential lots across its apartments and master-planned communities during the year which reflects the hit from rising interest rates and fewer product launches.

“Encouragingly, we saw a pickup in activity in the fourth quarter and improved buyer activity at projects that are nearing completion, such as The Langlee, Waverley and Nine at Willoughby in Sydney, with our customers now able to see the quality of the final product,” says Mirvac CEO Campbell Hanan. 

“We have a strong forward-looking apartment pipeline that is well placed to capture future demand in an undersupplied market, supported by positive fundamentals, including low unemployment, above-average wage growth, rising overseas migration, compelling relative affordability of apartments, and healthy household balance sheets.”

Amid the challenges faced by the construction sector, Mirvac is ramping up its development of build-to-rent projects through its LIV brand.

“The establishment and capitalisation of our build-to-rent venture supports our vision to increase our exposure to the build-to-rent sector, grow our portfolio to at least 5,000 apartments in the medium term, and play a key role in helping to address Australia’s housing and rental shortfall,” Hanan says.

Mirvac describes leasing rates in the sector as ‘strong’ with LIV Munro in Melbourne now 62 per cent leased and high occupancy maintained at LIV Indigo in Sydney.

In the commercial property space, despite leasing 223,400sqm across its office, retail and industrial portfolio during the year, the dynamics of the market are reflected in the writedown of Mirvac’s office portfolio by 5.6 per cent and its retail portfolio by 5.3 per cent, while the industrial portfolio benefited from a 6.2 per cent uplift in valuations.

Mirvac reports that the leasing activity is more than double that of FY22.

Hanan says that despite the challenges, the group had delivered on its ‘key strategic priorities’.

“We established new build-to-rent and industrial ventures with aligned partners, increased our third-party capital under management to $17.1 billion, and maintained a healthy balance sheet, underpinned by non-core asset sales and a disciplined focus on capital allocation,” Hanan says.

“Our diversified, integrated model remains a critical point of difference and continues to drive value for our securityholders.

“We achieved positive leasing success within our investment portfolio, now 97 per cent leased, and made good progress on our development pipeline, which included the completion of LIV Munro in Melbourne and partial completion at Switchyard Industrial Estate in Sydney.”

Hanan says the company is experiencing sales momentum for apartments projects as they edge closer to completion.

“Our focus on growing our relationships with aligned capital partners and selectively deploying capital across our development pipeline will ensure we remain resilient into the future.

“We will continue to increase our exposure to the industrial and living sectors over time, and while we will moderate our exposure to the office sector, we will continue to focus on prime assets, which are attracting strong tenant and investor demand.”

Mirvac is making a full-year payout to investors of 10.5c per stapled security.